The Basics: Extended Home Buyer Tax Credit 2009/2010 (source Realtor.org)
Bringing the Dream of Homeownership Within Reach
As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:
· Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
· Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.
Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.
Who Qualifies for the Extended Credit?
· First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
· Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.
Which Properties Are Eligible?
The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.
How Much Is Available?
The maximum allowable credit for first-time home buyers is $8,000.
The maximum allowable credit for current homeowners is $6,500.
How is a Buyer's Credit Amount Determined?
Each home buyer’s tax credit is determined by two additional factors:
1. The price of the home.
2. The buyer's income.
Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.
Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.
These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.
If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.
Can a Buyer Still Qualify If He/She Closes After April 30, 2010?
Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.
How to Get the Extended Home Buyer Tax Credit
You’ve decided to purchase a home and take advantage of the Extended Home Buyer Tax Credit. Here's what you have to do to get your benefit:
1. Close on your home purchase between November 7, 2009 and April 30, 2010, or have a binding written contract by April 30, 2010 and close by July 1, 2010.
2. Decide whether to:
· apply the credit to your 2009 tax return, filed on or before April 15, 2010;
· file an amended 2009 return; or,
· apply the credit on your 2010 return, filed on or before April 15, 2011.
3. Attach documentation of purchase to your return.
Documentation of Purchase
Details concerning the precise documents required to confirm your purchase have not yet been released. When this information becomes available, we will include instructions and links to the appropriate forms.
When to Apply the Credit
Buyers purchasing homes on or before December 31, 2009 may claim the credit on their 2009 tax returns.
Buyers purchasing in 2010 will have the option to:
· Claim the credit on their 2009 return, even if the purchase is completed after December 31, 2009;
· File an amended return for 2009 if their purchase is completed after April 15, 2010; or,
· Claim the credit on their 2010 tax returns.
If you, or your client, purchased a home between January 1, 2009 and November 6, 2009, please see: How to Get the 2009 First-Time Home Buyer Tax Credit.
Applying the Credit to Your 2009 Taxes
You will need to do three things to claim the credit on your 2009 tax return:
1. Fill out Form 5405 to determine the amount of your available credit;
2. Apply the credit when you file your 2009 tax return or file an amended return;
3. Attach documentation of purchase to your return or amended return.
Determining Your First-Time Home Buyer Credit Amount: Form 5405
Regardless of whether you're applying the first-time home buyer tax credit on your 2008 return or your 2009 return, you'll need to visit the IRS Web site and download Form 5405 (PDF 257KB) . This form has just six lines and takes only a minute to complete.
1. On the first line enter either $8,000 or 10 percent of the home purchase price, whichever is smaller.
Since the national median home price is around $175,200 (March 2009), in most cases the $8,000 will be the smaller of the two. In order for 10 percent of the home price to be smaller, the home purchase price would have to be $79,999 or less.
2. On the second line enter your adjusted gross income.
You will find your gross adjusted income on line 37 of Form 1040, which you submitted when you filed your 2008 return. The tax credit form actually requires you to note your modified adjusted gross income, but that affects few people, so most will just use their adjusted gross income.
3. If your adjusted gross income is more than $75,000 (individual) or your income is more than $150,000 (joint) you'll have to complete some additional calculations to determine the credit amount for which you qualify.
Everyone else will simply enter the tax credit amount on Line 6.
Applying the Home Buyer Tax Credit to Your 2009 Return
Breaking News: Tax Credit Can Be Used on Closing Costs.
To claim the credit as part of your 2009 return, you will need: The standard Form 1040 and Form 5405 for the home buyer tax credit.
1. First begin Form 1040.
2. Be sure to take note of your adjusted gross income, which you enter on lines 37 of the form. Form 5405 actually requires you to note your modified adjusted gross income, but that affects few people, so most will just use their adjusted gross income.
3. When you come to Line 69 you'll be asked to enter your tax credit amount. To do that, you'll need to first complete Form 5405.
4. Once you complete Form 5405, enter the amount on Line 69, then complete your return.
5. Attach Form 5405 to your return.
Collecting Your Refund
Any refund for which you qualify will be sent to you.